The benefits of technology has meant that the manufacturing process has become much more streamlined, with many businesses using just-in-time to bring efficiency to production. However, the impact of Brexit may cause those efficiencies to be reduced in the coming months as the supply chain slows down whilst the UK looks to adapt.
Many businesses like to use just-in-time as it means that there is no requirement to hold inventory over and above what will be required for the orders currently being processed. However, if part of the supply chain is likely to be impacted by Brexit, then there is a chance that your ability to access the necessary inventory in a relatively short time frame may be reduced. Depending upon your stance prior to the Covid-19 pandemic, you may be in a position whereby you have managed to build up additional stock over and above what you would normally carry.
If you have not done so as yet, then it would be worthwhile reviewing your potential order book to establish what inventory you need to complete those orders and whether it would be worthwhile trying to obtain the stock required prior to the end of 2020.
If you feel that you might need to adjust your production in the interim, especially if you rely on just-in-time to manage your inventory. However, if there are delays in obtaining the necessary stock to keep the production moving, businesses may experience bottlenecks in production. Bottlenecks can cause additional costs, especially where the business is operating an efficient production line, so being able to identify these sooner rather than later will assist with trying to keep production moving.
Where the potential for a bottleneck has been identified, it may be worthwhile reviewing your work in progress limits to see if adjusting these downwards whilst we go through the transition period may assist with managing production. Being aware of throughput and how potential delays may impact upon it will assist with any disruptions caused by Brexit.
With potential disruption at the UK border, it seems likely that the working capital cycle will be impacted for all businesses, but perhaps will be more keenly felt by manufacturing businesses. Delays in obtaining stock will impact upon work in progress which in turn will impact upon a business’ ability to convert work in progress into completed orders, therefore meaning that it will take longer to issue invoices and be paid for goods. There may be a need to have conversations with suppliers about the potential to extend terms however you should ensure that you are focused on your credit control process to ensure that invoices are paid on time. If you feel that cash might become tight, reviewing your finance requirements would be worthwhile.
We currently benefit from EU standards which are also used by our trading partners in the EU however Brexit may mean that you need to adjust your specifications if you supply to both the EU and UK markets. In addition, there may be different protocols in place for different areas within your business. Helpfully, the UK Government’s website, https://www.gov.uk/transition, provides an online tool where you can input your business details and a personalised action plan is generated.
Whilst there will be a period of uncertainty, understanding your supply chain, reviewing your stock levels against orders, and identifying potential bottlenecks ahead of time should all help you to prepare effectively for the transition as we exit the EU.